Big Short Investor Is On A Rural Real Estate Buying Spree In These Three States

When investors like Kyle Bass talk, investors listen. Bass, whose story was immortalized in Michael Lewis's book "The Big Short," first predicted then profited from the 2008 financial crash.

With that in mind, real estate investors everywhere should pay attention to his most current advice, which is to follow migration trends and buy real estate in those areas. Bass is buying large tracts of rural land in Texas, Florida and Tennessee. 

Those states have specific traits that give real estate the potential for high upside. First, they have a lot of rural land. Second, U.S. migration patterns are showing a shift to Sun Belt states like Florida, Texas and Tennessee. Third, they all offer a lower cost of living compared with the places that people are leaving to move to the Sun Belt.

"When you think about the U.S., you look at the coastal region, the West Coast and the Northeast being very high cost, very high tax — one could say mismanaged — jurisdictions," Bass said during an interview with Investor's Podcast Network. "They’re moving to pro-business, lower costs, lower or no-tax jurisdictions." 

That's one of the main reasons Bass is buying rural real estate in Texas, Tennessee and Florida.  

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Bass Has A Different Land-Use Plan Than Real Estate Investors 

Based on migratory trends, Bass's buying pattern is intuitive and could benefit any real estate investor looking for land with upside potential. Bass is not necessarily buying land for development purposes. He sees a different profit potential in using rural land as environmental credits.  

It's a smart move by a man with a history of making smart moves. In 2021, Bass founded the private equity firm Conservation Equity Management, which exchanges federal credits for environmental services such as wetland restoration on privately held property. The firm purchased $90 million worth of land in Texas, and if that land continues to appreciate at the same rate as the previous decade, he will more than double his money.

“As more companies and people move to Texas and other pro-business, low-tax states, there will be devastating environmental consequences, forcing firms to consider their physical environmental impacts, carbon footprints and mitigation options," Bass told Reuters.

Bass Has A Strong Preference For Land Investments

Bass has another, more practical reason for buying land, which he prefers to gold as an alternative investment. "When I think about gold versus rural land again, I have the population demographic in my tailwind. I also have something that I can drive to,” he said during the 2022 Reuters interview.

It's hard to argue with the logic behind that strategy.

A Caveat To Real Estate Investors Regarding Bass's Investment Strategy

Based on migration patterns in the United States, investing in Texas, Florida and Tennessee (or similar markets) makes a lot of sense. However, there is an important caveat to consider before going all-in on Texas or Florida real estate investing. Bass spoke of these states as being "low-tax, business-friendly" jurisdictions and that's true. Florida and Texas are both states with no state income tax.

The question is how long that remains the case. Up to now, those states have been able to manage without a state income tax because they were relatively sparsely populated compared with the amount of land they have. As millions of people move in, infrastructure like schools, highways, public transit and additional staff for emergency services such as police and fire departments becomes necessary. It's not easy to get all that done without state income tax.

Accommodating population booms in the 1960s, '70s and '80s is why states like New York and California have such high tax rates. Regardless of how well-managed Bass perceives Sun Belt state governments to be, they can't print their own money. Eventually, those state governments will need to raise money, and it's the residents of those states who will foot the bill. Eventually, every booming economy will become a victim of its success.

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